While many people might expect that all law firms know how to improve cash flow, the facts paint quite a different picture:
- After they send out invoices, law firms wait an average of 83 days to get paid.
- Nearly three out of every four firms regularly deal with past-due accounts.
- More than half of law firms report that between 10 and 49 percent of their accounts are past due.
As those figures suggest, lawyers—particularly those who operate solo firms—will almost certainly encounter cash flow problems from time to time. And as much as you might not want to hear it, such problems can have as big an impact on your solo firm’s success as your performance in the court room.
The good news is that you don’t have to accept cash flow problems as an unbreakable reality of running your practice. By shaking things up a little bit, you might even stop worrying about where cash is coming from altogether—because you’ll always have access to the funds you need to grow your business.
With that in mind, let’s take a look at four ways your solo firm can improve cash flow:
1. Streamline your processes
According to a recent study, more than half of lawyers say they spend way too much time on billing—as much as 8 or 16 hours each month. Since your time is finite, if you find yourself spending more of it than you’d like to admit searching for documents or invoicing your clients, it might be time for you to reexamine the way you work to see how you can improve processes.
For example, you can use legal practice management software to streamline a lot of the tasks that have a way of taking up more time than you’d expect (like scheduling, time tracking and invoicing). Additionally, you could also migrate your documents to the cloud so that you’re able to access them from any connected device.
No need to even re-evaluate or restructure your firm: options like Clio have integrated online and credit cards payments directly in the platform. Invoice via email, they can pay via direct link. Seamlessly sort your payment process and improve cash flow—with an entirely automated feature. Reclaim hours of time from admin work, to reinvest in client intake and, maybe, even billable legal strategy.
2. Set bigger retainers
Do you routinely find yourself in situations where your retainers run out and your clients aren’t quick to replenish them? If so, it might be time to consider increasing your fee. After all, if your clients aren’t paying, you’re essentially working for free. Which is a lot like running a credit agency—although you’re incurring all the risk without collecting any of the reward (i.e., interest).
To settle past-due accounts, many lawyers give their clients discounts in order to get them back into good standing. But this actually encourages slow-paying clients to take even more time to settle their bills.
There’s an old saying amongst lawyers that the best way to deal with delinquent accounts is to double your retainer. Of course, boosting your retainer fee—at whichever rate makes the most sense for you—might cause some of your clients to seek counsel elsewhere. But on the other hand, your average revenue per client will increase, so you might even make more money working fewer hours. And you’ll also have more time to take on additional higher-paying clients.
3. Choose clients wisely
All lawyers have had clients who expect 24 hours of work each day. And they’ve all had clients who are, at best, hesitant to pay their bills.
Rather than taking on any old case that walks through your door, it might be time to be more selective in your approach. That way, you can invest your energies in clients who respect your time and can afford your services.
4. Use Fundbox
When your bills are due, you have to pay them—even if your clients are taking longer than you’d like to pay theirs. Rather than scrambling to find funds at the last minute, you can use an invoice clearing service like Fundbox to solve your cash flow problems.
For a small fee, Fundbox advances payments on outstanding invoices. You can then repay that amount over a 12-week period. Simply put, Fundbox gives you access to the cash you need to make your solo firm grow. Clio customers can even sync unpaid invoices directly to Fundbox for advance payment.
Cash flow problems affect every small business owner, including those who operate solo law firms. But by simply taking a few proactive steps, you’re less likely to find yourself scurrying at the last minute to find the funds you need to pay your bills. In doing so, you can solve your cash flow problems—and grow your practice as a result.
Anna Eschenburg is the senior marketing manager at Fundbox. Fundbox offers business owners a simple way to fix their cash flow by advancing payments for their outstanding invoices, giving solo firms back the power to control their cash flow.